Local shares have rallied on better than expected domestic trade and retail data, with the big banks and supermarket operators leading the charge.

The benchmark S&P/ASX 200 Index rose 61.1 points, or 1.2 per cent, to 5131.4, while the broader All Ordinaries Index also lifted 1.2 per cent to 5147.4.

Shares got their momentum from positive local news, shrugging off a weak lead from the United States where stocks continued to drift lower. A disappointing private sector employment survey was considered a negative indicator ahead of the important official US non-farm payrolls data due for release after the Australian market closes on Friday.

Major Asian markets provided mixed cues for the local market in the afternoon session.

“A really great set of local economic data showed that the pessimism about the local economy was overdone. After the past week’s selling some share price adjustments have been made and investors are once again looking at fundamentals,” AMP Capital head of asset allocation Nader Naeimi said.

Shares and the dollar both rose after positive retail sales and trade balance figures eased worries about Reserve Bank of Australia’s decision this week to drop its “easing bias”.

Whether or not Mario Draghi and his European Central Bank colleagues plan to do anything about it at the monthly meeting tonight, many economists are sounding the alarm. It is time, they say, to act defensively against the danger of deflation.

“We don’t know if we’re in deflation now, but we can’t afford to take the risk,” said Gilles Moëc, chief European economist at Deutsche Bank in London. “The problem is that it’s very hard to know when you’re in it, and usually when you do, it’s too late. That’s what Japan found.”

Officially, the 18-nation euro zone so far has been experiencing “disinflation” — a falling rate of inflation. Consumer prices ticked up just 0.7 percent in January from a year earlier, matching the record low set in October, according to an estimate by Eurostat, the European Union’s statistical agency.

The European Central Bank tries to maintain an inflation rate of just below 2 percent.

When it takes hold, deflation — a decline in the general level of prices — undermines growth, and lowers corporate earningsand the values of assets like real estate. And in economies burdened by a debt overhang, as much of the euro zone still is, deflation can drive a self-reinforcing downward spiral, in which borrowers are bankrupted by their inability to repay loans on devalued assets.

On the other side of the ledger, Karoon Gas fell 4.6 per cent, while Fairfax Media (who?) dropped 3 per cent.

The best and worst performers in the ASX 200 today.

1:43pm on 6 Feb 2014

Looking ahead to tonight with IG's Stan Shamu...

Focus shifts to central bank activity with the ECB and BoE being the highlights. As it stands we are calling the major European bourses firmer as they play catch up to the positive momentum we are seeing in Asian trade.

While no change is expected from the ECB nor the BoE, the former seems like it’ll be the more interesting of the two. Fears of disinflation have been rampant ever since the softer German CPI reading in January.

This makes the press conference particularly interesting as the market wants to see some form of action in Europe. Perhaps some unconventional measures to lift the region’s economy might be explored in detail.

On the Aussie dollar front, this week has seen the AUD switch to a neutral bias and today’s positive data added pressure to the upside.

Tomorrow we have the RBA’s statement of monetary policy which could come with some upgrades to inflation forecasts. This could see the AUD extend its gains and encourage fresh buying.

The AUD will also be watching emerging market activity closely of which a continued improvement would be positive for risk.

China’s week long break ends today and market there will have a lot to catch up to when they return to trade tomorrow.

Finally some good news from the sharemarket today, with the ASX 200 up 1.2 per cent, or 61.1 points, to 5131.4.

The All Ords also finished 1.2 per cent higher, to 5147.4.

The sector recording the biggest gains was consumer staples, up 2.5 per cent off the back of a strong rise in Woolworths, which jumped 2.4 per cent to $34.72 after the supermarket owner reported impressive quarterly sales figures.

Wesfarmers shares also felt the love, adding 2.7 per cent to $42.44.

The big four banks pushed the market higher, all up between 1.4 per cent and 1.7 per cent, with Westpac the best performer.

Rio was up 1.6 per cent to $65.65, BHP was up 0.8 per cent to $35.57 and Woodside added 1.8 per cent to close at $37.62.

Biggest drags on the market were Westfield Group, down 0.6 per cent, and Asciano, which dropped 1.4 per cent to $5.47.

Utilities was the only sector to record a loss, led lower by Energy World Corp.

12:54pm on 6 Feb 2014

Forget the bears, the rats will inherit the earth.

After the market crash come... the giant rats... (no, not even the bears survive)

This from Forbes:

Forget Planet of the Apes; in the distant future, the Earth will be populated by giant rats.

Some of them could grow to weigh as much as people.

“Given enough time, rats could probably grow to be at least as large as the capybara. The world’s largest rodent that lives today can reach 80kg,” said Dr Jan Zalasiewicz, a paelobiologist at Leicester University. “If the ecospace was sufficiently empty, then they could get larger still.”

God appears to have intervened on the side of wharfies at Sydney’s Port Botany after a freak storm at seadamaged millions of dollars worth of robot container cranes that are supposed to take their jobs.

Damage to the machines will not stop hundreds of jobs at Patrick’s operations at the port eventually being replaced, but it is likely to significantly delay their departure.

The damage was caused when a ship carrying a batch of the AutoStrad carriers from Europe to Australia was struck by a ‘‘significant storm’’, the company said. Each of the new movers has a price tag of about €1 million ($1.52 million).

It is unclear exactly how many of the automated carriers were onboard, but the supplier has told Patrick’s parent, Asciano that the majority were damaged.

But even if not all the units are damaged, Patrick is unable to make the switch to automation at Port Botany without all 44 of the robot carriers it has ordered up and running at the facility.

The new carriers, which will shift containers from the docks to holding yards, will replace about 42 carriers manned by wharfies at Port Botany.

The switch to automation will result in Patrick laying off 270 of its 511 workers at the port. Patrick has already made redundant some wharfies over the last year. The automation of operations at Port Botany will save Asciano an estimated $50 million a year.

Mackenzie was one of the many chief executives, politicians and celebrities to spend the day selling the The Big Issue magazine, in an attempt to raise awareness for homeless people and the disadvantaged.

A Babcock & Brown global investment fund wants the embattled former company directors including chief executive Phil Green and Rob Topfer to dish out $25 million for a botched investment in 2007, accusing the high profile business identities of breaching both their duty of care and fiduciary duties.

The transaction in question is known as the Coinmach deal saw the B&B group in Australia and the United States acquire the company which acted as a holding company for a number of laundry equipment companies, under the supervision of Topfer, the global head of corporate and structured finance and Richard Umbrecht, the US head of special house products.

The investment group paid $400 million for the laundry companies in June 2007 but even before the market crashed in 2008 there were already signs the investment would not pay off.

The latest piece of litigation was launched in the Supreme Court in Victoria on November 13, 2013, with the plaintiffs asking for damages for loss suffered under the Corporations Act, plus punitive damages in the United States.

The claim alleges that the investment was recommended even though a conflict existed, which was in breach of the fiduciary duties owed by each of the directors and officers of the company particularly in failing to disclose all pecuniary and financial interests.

Acrux was down another 8 per cent yesterday on the back of a 10 pr cent decline the day before.

[It's up 4.3 per cent today to $1.99.]

At current prices, this stock is cheap, and enough is enough.

The FDA safety concerns will take a long time to resolve (I'd hate to have a new product trying to get approved), but Acrux is trading on FY14 PE of less than 10x and announced yesterday they will declare a special dividend when its 1HFY14 results are announced on 20th February.

The dividend will be paid out of the US$25m milestone payment (or $20m, after tax).

We are forecasting 7cps but could be pleasantly surprised on the upside.

At current prices, ACR is worth buying, and I bought some yesterday.

11:49am on 6 Feb 2014

One of the reasons for the recent sell-off in emerging markets equities is the fear that an end to the US Federal Reserve's cheap money and ensuing higher yields in the US will draw capital away from developing countries.

Among EM, economies with larger reliance on investment for growth are likely to face stronger headwinds from the Fed's tapering.

Investment accounts for a more than average share of economic growth in the Asia Pacific region — especially in China (48 per cent), India (36 per cent), Indonesia (35 per cent), Thailand (31 per cent), South Korea (29 per cent) and Australia (28 per cent), the following chart by Bloomberg nicely shows.

The RBA should be pleased with the export sector’s contribution to growth and largely indifferent to the pace of retail sales. The former needed to rise after all of the investment in the mining sector while consumption growth is broadly in-line with household disposable income. Both are proceeding as expected by the RBA.

CBA

Overall the economy is on a solid footing and remains fundamentally sound. Given the low interest rate environment, rising share markets and lift in home prices, the Reserve Bank is likely to be watching for an improvement in labour market conditions. Interest rates are on hold over the medium term.

TD Securities

A very good trade balance number balanced against a milder real retail sales outcome points to a stable and steady growth outlook. Net-net, the data has no near term implications for monetary policy but reinforces the RBA’s move this week to signal that a period of stable rates is the more prudent course of action.

The last time that exports began gaining against imports was in April 2010 and by that time the RBA had already begun its tightening cycle.

The market is now pricing in about a 20 per cent chance of a rate cut by June 30 this year.

11:36am on 6 Feb 2014

David Paradice is one of Australia’s best known small-cap investors. The AFR’s Smart Investor asked him what themes he’s currently focusing on.

Paradice says he’s ‘‘reasonably positive on the domestic economy’’ and building materials are a play on that:

They’ve been out of favour, but now we can see them picking up. See, you go from defensive stocks to cyclical stocks.

Cyclicals are some of these building material companies, defensive are food and healthcare, so you are OK in a bad market, but they don’t have the operating leverage of other companies.

In terms of stocks, Paradice says he likes CSR:

We’ve got 8 per cent because we think it was going to get an uptick in the building cycle among other things.

A lot of the companies we are invested in have a domestic focus. Fletcher Building too, we have a reasonable shareholding in that. That has a reasonable focus on the building sector and an uptick in the economy generally.

An absence of fresh currency shocks has restored some calm to emerging markets where heavily sold currencies have rallied in the past week as investor concerns shift to developed markets.

Since the start of the week, the Ethiopian birr, Mexican peso, Turkish lira and Ghana cedi - and our very own dollar - have yielded the best spot returns in foreign exchange markets.

The lack of severe ructions suggests that the developing world is not on the cusp of crisis. However, emerging economies are still vulnerable to currency market upheaval and the full force of the United States Federal Reserve’s tightening and China’s slowing are not known yet.

Still, Ukraine’s hryvnia declined to the lowest level in five years on Wednesday, forcing that country’s central bank to intervene in the forex market. Ukraine is on traders’ radars because it is running a current account deficit and battling political instability.

These are two of the seven factors Morgan Stanley highlighted in analysing which economies are exposed to future “sudden stop” events.

UBS interest rate strategist Andrew Lilley says news is a big influence on sentiment towards emerging markets where data is not as frequent or as fast as in developed markets:

You need constant bad news in order to retain that sense of panic because there is no hard proof of any emerging markets crisis outside of Argentina.

It’s very difficult to get a broad sense of what’s happening with emerging markets reserves in real time because of the uncertainty.

Concerns that emerging markets are on the cusp of a collapse are over-stated. We’re all reading from the same information and you only get anecdotal information from traders about what central banks are doing.

Best, and worst, returns this week.

11:21am on 6 Feb 2014

Let's take a look at how other markets in the region are travelling, ahead of a return to trading in China tomorrow. They're all up.

Japan's Nikkei is up 0.3 per cent.

Hong Kong's Hang Seng up 0.6 per cent.

The KOSPI in Korea has gained 0.8 per cent.

Singapore's index is 1 per cent higher.

The Thai Stock Exchange is up 0.3 per cent.

Indonesia's Jakarta Composite Index is 0.3 per cent up.

And Kiwi shares have gained 0.1 per cent.

11:16am on 6 Feb 2014

Echo is one of the cheapest casino operators in the world, according to Credit Suisse analysts.

“EGP is registered as one of the least expensive casinos in our global comparative company list,” the analysts told clients in a note titled “Cheap for a reason, but cheap nevertheless”.

The analysts upgraded Echo from “neutral” to “outperform” in the wake of its first-half financial results on Wednesday, despite slashing its 12-month target price to $2.50 from $3. Deutsche Bank analysts also upgraded the stock to “buy”.

Despite the noise from the usual suspects, there’s no evidence that the consumer needs lower interest rates. He and she are spending just fine, but spending where they choose to, rather than where some existing businesses would like them to be.

Instead of nervously counting our pennies in the face of ‘cost of living’ headlines, what we’re doing is eating out much more and keeping baristas employed. The star sector within retail continues to be restaurants, cafes and fast food outlets.